NCUA & Multi-featured Open-end Lending

1. NCUA & Multi-featured Open-end Lending

2. NCUA Letter 12-FCU-02 • Supervisory Letter - Supervision Considerations for Multi-Featured Lending Programs • Multi-featured Open-end Lending Plans • & • Multi-Featured Lending Plans

3. MFOEL History September 2010 – NCUA Letter 10-FCU-02 July 2012 – NCUA Letter 12-FCU-02 July 2012 – Supervisory Letter Supervision Considerations for Multi- Featured Lending Programs SUPERSEDED

4. Multi-Featured Open-End Lending

5. MFOEL – Policies & Procedures • Multi-featured Open-end Lending Policies and Procedures need to comply with the amended open-end lending rules in Regulation Z: • Members apply for credit at account opening • Credit union underwrites loan at account opening • Individual advances can NOT be underwritten • Credit union may “occasionally or routinely” verify credit information.

6. Multi-Featured Lending Plan • Multi-featured lending plans include: • One master loan agreement that the member signs when the multi-featured plan is first established; and, • Multiple sub-accounts with both open-end and closed-end credit features which fall under the master loan agreement. • Open-end loans under the plan receive open end disclosures • Close-end loans under the plan receive close-end disclosures

7. Lending Definitions • Open-end loans: • The creditor reasonably contemplates repeated transactions; • The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and, • The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.” • Closed-end credit: “consumer credit other than “open-end credit”.

8. MFOEL Best Practices • Draft and approve policies and procedures that differentiate open-end lending from closed-end lending; • Provide appropriate disclosures and properly characterize advances as open-end or closed-end credit; • Ensure data processing systems can identify and appropriately send statements to members with MFEOL plans; • Provide staff training; and, • Obtain the advice of legal counsel.

9. MFOEL Best Practices • Credit reports should not be pulled to underwrite individual advances; • Portfolio credit scoring, or “soft pulls”, are appropriate if done on a routine, periodic basis for the entire MFOEL portfolio; • Portfolio credit scoring, or “soft pulls”, are not permissible in conjunction with a particular member advance that is treated as open-end credit.

10. Letter to Federal Credit Union 12-FCU-02 • Provide members with the correct disclosures for each transaction (open and closed end loans) within the plan; • Only underwrite open-end credit advances at account opening; and • Review state laws to ensure that multi-feature lending plans are practical and legal in your state.

11. Thank you for joining me for this overview of the NCUA Letter to Federal Credit Unions 12-FCU-02 on MFOEL and MFL Plans.